The Nuts and Bolts of Tolling an Insurance Policy’s Suit Limitation Provision in New Jersey

A recent New Jersey Federal District Court decision provides a good example of how an insurance policy’s Suit Limitation period may be “stopped” and “re-started” by equitable tolling during the adjustment of a property insurance claim

As we explained in an earlier post, New Jersey permits parties to an insurance contract to shorten (or presumably lengthen) the state’s six year statute of limitations for a party to commence an action for breach of contract.  This is commonly done through a clause in the insurance policy that provides any action must be brought within X years of either (i) the date of loss, or (ii) the carrier’s denial of the claim (the “Suit Limitation” provision).  The Suit Limitation provision is typically styled as a “condition” in the policy – in other words it is an action the policyholder must take before they are entitled to recover benefits under the policy.  An insured’s failure to comply with the Suit Limitation condition (or any condition) may preclude them recovering damages in a lawsuit for a loss that might otherwise be covered.

New Jersey parts company with the majority of other states by “tolling” the limitations period from “from the time an insured gives notice until liability is formally declined.” Peloso v. Hartford Fire Ins. Co., 56 N.J. 514, 521, 267 A.2d 498 (1970).  As such, one effect of tolling is that the time between the insured’s notice of the claim, on one hand, and the insurer’s denial of coverage, on the other, is not taken in account in determining whether the insured has complied with the Suit Limitation condition.   Importantly, some New Jersey courts have stated that there must be an “unequivocal” denial in order to end the tolling period and restart the Suit Limitation clock.

In Boisvert v. State Farm Fire & Cas. Co., 2016 U.S. Dist. LEXIS 87031(DNJ July 6, 2016), the insureds suffered damage to their home as a result of Superstorm Sandy.  The insureds immediately gave notice of visible damage and, after learning that their home had sustained structural damage, provided notice of the structural damage on December 27, 2012.

On April 29, 2013, State Farm informed that insureds that the structural damage was caused by settlement and was not covered under the Policy.  The insureds communicated their disagreement to State Farm who sent another adjuster to evaluate structural damage.  On July 26, 2013, State Farm again informed the insureds that the structural damage was not covered, but invited the insureds to submit any additional information for consideration.

The insureds requested mediation with State Farm on September 3, 2013.  The parties mediated on October 3, 2013.  During the mediation State Farm invited the insureds to submit additional documentation in support of their request for re-consideration.  The mediation was unsuccessful.

Less than a year later, on September 16, 2014, the insureds filed a complaint alleging, inter alia, breach of contract.   State Farm moved to dismiss the complaint based on the Policy’s one-year Suit Limitation condition because the alleged property damage occurred on October 29, 2012 and Plaintiffs did not file suit until September 16, 2014 – more than one year after the “date of loss or damage” as set forth in the policy.

The Plaintiffs argued that the Suit Limitation condition should be tolled.  The two primary reasons (and the only ones this post will discuss) articulated were: (1) the July 26, 2013, letter was not an “unequivocal denial” that ended the tolling period, and (2) Plaintiffs relied on State Farm’s actions in seeking mediation before filing suit.

The Court analyzed the July 26th letter and concluded that it was a clear and unequivocal denial, despite the invitation to the insured that they could submit additional information for consideration.  As a result, the 365-day limitations period –  which had been tolled since the insureds’ October 29, 2012 notice – began to run again on July 26, 2013.    Therefore, the insureds had 365 days from July 26, 2013 to file suit, unless the Suit Limitation period was tolled again.

The Court determined that even if State Farm’s alleged statements to the Plaintiff that “they must participate in mediation, and that they did not have any other option” caused Plaintiffs to delay filing suit, Plaintiffs still did not timely file:

“Defendant denied Plaintiffs claims on July 26, 2013, thus the statute of limitations began to run.  On September 3, 2013, Plaintiffs requested mediation as a result of Defendant’s alleged actions. Accordingly, between July 26, 2013 and September 3, 2013, the statute of limitations ran for 39 days and was tolled on September 3, 2013 when Plaintiffs requested mediation. The statute of limitations then began to run again on October 3, 2013, once mediation was complete. Thus, Plaintiffs had 326 days (365 days minus 39 days) from October 3, 2013 to file suit–by August 25, 2014. Plaintiffs did not file suit until September 16, 2014. Accordingly, Plaintiffs’ Complaint was untimely.”

The decision in Boisvert v. State Farm is the result of a relatively straightforward application of New Jersey’s tolling doctrine, and provides useful insight as to how tolling is affected by interactions between the insurer and insured.

A State Law Wolf in Federal Common Law Clothing: The Third Circuit Rejects Insured’s Attempt to Expand Causes of Action Under the Standard Flood Insurance Policy

Courts across the country (and particularly since Super Storm Sandy in 2012) have consistently held that, in litigation involving a dispute concerning the investigation, adjustment, or payment of a flood claim under the Standard Flood Insurance Policy, policy holders are limited to breach of contract causes of action against their Write-Your-Own insurance carriers. Those courts have reasoned that, because payments made under the SFIP are made out of the federal treasury, and because the statutory framework enacting the National Flood Insurance Program has a preemptive effect on state law claims, policy holders may not allege tort-based causes of action or seek extra-contractual categories of damage. Despite that prohibition, policy holders frequently attempt to argue around those restrictions and recover more than just their breach of contract damages.

Such was the recent case of Psychiatric Solutions, Inc. v. Fidelity National Prop. & Cas. Co., 2016 U.S. App. LEXIS 10894 (3d Cir. June 16, 2016). In that case, involving disputed payments arising from damage caused by Hurricane Irene and Tropical Storm Lee, the insured alleged: (1) breach of contract; and (2) what the court described as a count “sounding…somewhat vaguely[] in fraud and misrepresentation.” Following the district court’s granting of the insurer’s motion for summary judgment on both counts, the policy holder appealed. As to the fraud and misrepresentation count, the insured argued that, although the National Flood Insurance Program preempted state law claims for fraud and misrepresentation, the claims that it asserted in this case were brought under the federal common law only, and should therefore be permitted to proceed. The Third Circuit disagreed. The Court noted that none of its precedents “authorizes a party to refashion state claims as claims under federal common law.” In fact, to permit such a dressing-up of impermissible state law claims “would frustrate the intent of Congress” by allowing “preempted state law claims to proceed under the guise of federal common law.” As such, the Third Circuit affirmed the district court’s grant of summary judgment on the fraud and misrepresentation cause of action.

Although the Court simply reinforced its prior precedent, and the precedent of other circuits, Psychiatric Solutions is a useful reminder as to the appropriate scope of litigation arising from a dispute about the payment of a claim made under the National Flood Insurance Program.

Missing Millions, An Armored Car Conspiracy, And A Fraudulent Connecticut Insurance Application

In determining whether or not to provide insurance to a particular applicant, one thing that insurance companies typically rely on is the insurance application submitted by the prospective insured. The application is designed to provide the insurance company with, among other things, a comprehensive overview of the risk to be insured. Given the importance of the application, and the reliance that insurance companies place on the information therein, insurance companies are generally permitted to rescind insurance policies if it is later discovered that the relevant application contained an intentional misrepresentation of an important piece of information. Specifically, Connecticut courts have held that an insurance policy may be voided if: 1) there was a misrepresentation or untrue statement by the insured in the application; 2) that the misrepresentation or untrue statement was knowingly made; and 3) that the misrepresentation or untrue statement was material to the insurer’s decision to insurer the applicant.

The issue of misrepresentation in insurance applications in Connecticut was recently highlighted in the federal court case of Known Litigation Holdings, LLC v. Navigators Ins. Co., et al., 2016 U.S. Dist. LEXIS 82675 (D. Conn. June 24, 2016). In that case, the bank, who later assigned its rights to the plaintiff, entered into a Courier Agreement with New England Cash Dispensing Systems (“NECD”) – an armored car/cash management company – to provide for the transport of the bank’s money. As part of the Courier Agreement, NECD was required to maintain insurance for the money being transported, and to include the bank as a loss payee on the policy.

From 2007 to 2010, NECD applied for and received four successive years of Armored Car Operators’ insurance (which is exactly what it sounds like) from the defendant insurer. In 2010, however, it came to light that a “great deal” of the bank’s money – $4,805,540 to be precise – that NECD was responsible for transporting was missing. The money had, in fact, been stolen by a number of NECD employees who were subsequently criminally convicted for a bank fraud scheme that had stretched back into at least 2006.

As a loss payee under NECD’s Armored Car Operators’ policy, the plaintiff bank submitted a claim for the missing money. The insurer denied the claim for a number of reasons, including the fact that NECD had lied on its multiple insurance applications. Specifically, NECD responded “No” in response to the question “In the last 6 years have you or any predecessor company suffered a loss or losses, whether covered by insurance or not and if insured whether a claim was paid or not?” Importantly, the person who signed the insurance application for NECD was a member of the conspiracy and was, at the time the applications were submitted, actively stealing money for which NECD was responsible.

The bank brought suit against the insurer. On cross-motions for summary judgment, the Court found that the insurer properly voided the policy and refused to pay the claim. The Court held that “no reasonable jury” could find that there were not material misrepresentations on the insurance applications submitted to the insurer because the evidence was clear that, when the applications were submitted, NECD knew that it had suffered significant losses due to employee theft.

Two final issues merit brief comment. First, as discussed above, the case was decided on summary judgment. Questions of fraud and/or misrepresentation are frequently fact-intensive, credibility-based determinations that may not be susceptible to resolution on summary judgment. The Court’s decision in this case, however, demonstrates that, at least in some cases, misrepresentations may be so clear-cut that summary judgment is appropriate. Second, the bank argued that it would be “unconscionable” for the Court to not permit it to recover its money given the malfeasance of a trusted third-party. The Court rejected that argument, noting that, as a loss payee, the bank had no greater rights than the insured under the policy, and that all defenses that could be asserted against the insured could be asserted with equal force against the loss payee.

Drone Mapping the Way of the Future for Insurance Companies

Drone mapping provides insurance companies with an easy, fast and accurate method of documenting a scene and preserving key details  while also letting the process of clean-up and reconstruction begin as quickly as possible. Recently, Dronotec, a start-up company specializing in drone inspection for insurance companies conducted a case study to determine just how much money this drone mapping was saving insurance companies. Dronotec’s founder, Emilien Rose, worked as a loss assessor in France and Australia for 10 years and conducted assessments of about 8,000 claims. Rose believes that Dronetec and drone mapping can really save time and money for insurers.

For example, recently a fire in France consumed 5 acres of a vacation destination on the coast. Once the insurance company came in to assess the damages, they realized that the sheer size of the site posed quite a challenge. Moreover, so much of the property was damaged by the fire, inspectors could not enter the properties or inspect the roofs without the threat of personal injury. A plane attempted to capture photos but many of the photos were not clear or sharp enough to use. However, the loss adjuster recommend a drone to do the mapping of the scene. In about 10 minutes, the drone collected more than 300 geo-tagged photos flying about 180 feet over the property. The images were uploaded to a drone mapping program, and three hours later a 2-D map and 3-D model of the property and the damages were available. The high degree of accuracy of not only the photos but the mapping improved the likelihood of identifying the cause of the accident exponentially. And the insurance company’s team members were able to collaborate and review the mapping in one cloud-based space. In this one case, the use of drone mapping saved this French insurance company about €99,985,000 (or about $110,600,000).

The ability to quickly process claims is very helpful to insurance companies with large scale disasters that have many claims filed related to the same incident. Continue Reading

Is Anyone Home? Washington Supreme Court Interprets Two-Step Vacancy Endorsement

Disputes involving “vacancy” exclusions typically involve the appropriate definition of that word. We have previously written about such cases here and here. The recently-decided case of Lui v. Essex Ins. Co., 2016 Wash. LEXIS 692 (Wash. June 9, 2016) presents a somewhat different issue, namely, how soon after a vacancy occurs are a policy’s coverages restricted.

In Lui, the insureds owned and rented out a three-story building with a tenant space. On or about January 1, 2011, the building suffered substantial water damage, totaling over $750,000, when a sprinkler pipe froze and broke. There were no tenants in the building at the time of the loss – the previous tenant had been evicted some four weeks prior for failing to pay rent.

When, during the investigation of the loss, the insurer learned that the property had been vacant when the pipe froze, it denied the claim, relying on the policy’s “Vacancy or Unoccupancy” endorsement, which limited the available policy coverages in the event the insured property had no tenant(s) or occupant(s). Specifically, the applicable endorsement provided that:

Coverage under this policy is suspended while a described building…is vacant or unoccupied beyond a period of sixty consecutive days…

Effective at the inception of any vacancy or unoccupancy, the Causes of Loss provided by this policy are limited to Fire, Lightning, Explosion, Windstorm or Hail, Smoke, Aircraft or Vehicles, Riot or Civil Commotion…

The insureds brought suit, claiming that the terms of the endorsement were ambiguous and irreconcilable, and, therefore, that all policy coverages remained in effect until the property was vacant or unoccupied for more than sixty days. In other words, the insureds argued that there were no “coverage consequences” relating to a building vacancy until the 61st day of that vacancy. On cross-motions for summary judgment, the trial court agreed that there was a “conflict in the language” of the endorsement and entered judgment for the insureds. The appellate court disagreed, reversed, and certified the case to the Washington Supreme Court.

The Washington Supreme Court interpreted the policy using a “a fair, reasonable, and sensible construction as would be given to the contract by the average person purchasing insurance.” Applying this standard, the Court concluded:

the average insured would understand that the endorsement alters the underlying insurance policy to the extent that when a building becomes vacant, the policy provides limited coverage and, after a 60 consecutive day vacancy, the policy provides no coverage.

Given that interpretation, the fact that the insured property was vacant at the time of the loss, and the fact that the limited, enumerated, perils that remain covered for a period of time post-vacancy did not include water damage, the Court determined that the policy did not provide coverage for the claimed loss.

In so-holding, the Court also explained the justification for the gradual, two-step, post-vacancy, reduction of coverage provided in the endorsement. The Court noted that:

Potentially damaging conditions in a vacant building are more likely to go undiscovered…The longer a building is vacant, the greater the risk and the greater the damage if there is a condition causing damage. Therefore, it makes sense that a vacancy endorsement would limit coverage for the first 60 days of a vacancy and then exclude all coverage if the building remains vacant after 60 days. Indeed, the facts of this case highlight the risks to a vacant building and why an insurance company would include such a vacancy endorsement.

The Court’s decision provides a useful explanation of both the interpretation and application of a two-step vacancy endorsement, as well as the practical risk-control reasons that an insurer may require a gradual reduction in coverages over a period of time following a vacancy.

Broad but not Ambiguous: Eighth Circuit Weighs In On Water Below The Surface Exclusion  

An exclusion in a homeowner’s policy for loss resulting from “water . . . below the surface of the ground” is not limited to naturally occurring water, according to a recent decision of the Eighth Circuit Court of Appeals in Bull v. Nationwide Mut. Fire Ins. Co., 2016 U.S. App. LEXIS 9703 (8th Cir. May 27, 2016).

The insured in Bull v. Nationwide discovered that a pipe buried beneath his garage had leaked, causing mold damage, foundation settlement and cracking.  Nationwide denied the claim on the basis of an exclusion for “water or water-borne material below the surface of the ground,” and the insured filed suit.  The District Court granted Nationwide’s motion for summary judgment, and the insured appealed to the Eighth Circuit.

The insured, relying on case law from other jurisdictions (Adrian Associates, General Contractors v. National Surety Corp., 638 S.W.2d 138, 141 (Tex. 1982); Hatley v. Truck Ins. Exch., 261 Ore. 622, 624, 495 P.2d 1196 (1972)), first argued that the court should find that the exclusion is ambiguous, and should only apply to water from natural sources.  The Eighth Circuit rejected the insured’s argument, noting that it would be inappropriate to “graft limitations onto otherwise plain and straightforward policy language.” The court emphasized that the breadth of the exclusion did not render it ambiguous, and looked to the Arkansas Supreme Court’s previous refusal to accept disagreement among other courts over the meaning of a term as dispositive of ambiguity.

The Eighth Circuit also rejected the insured’s argument that the District Court had erroneously relied on two Arkansas Court of Appeals cases, in which the court interpreted policy language specifying that the exclusion applied to losses caused by “water . . . below the surface of the ground regardless of its source.”  Recognizing that those cases were indeed distinguishable, the court nevertheless concluded that demonstrating that other policies’ provisions were perhaps drafted more carefully was insufficient to show ambiguity in the language at issue.

This decision may prove helpful to insurers responding to policyholders’ arguments relying on other jurisdictions and other policy language to demonstrate ambiguity.

Insurance Company Drones May Be Hitting the Skies

Back in March, our Data Privacy + Security Insider blog reported an increase in the use of commercial drones by State Departments of Transportation across the country. Now, insurance companies are also getting in the game. Using drones for underwriting, determining property values and conditions for policy issuance, inspections and risk evaluations may be more economical, may provide for better response times for inspections of insureds’ properties during a catastrophe, and may increase the safety of insurer employees.

So what does this mean for insurance companies? Well, certain provisions of the Federal Aviation Administration (FAA) Modernization Act may be implicated. Insurers may also consider Section 333 exemption and certificate. Section 333 of the FAA Modernization Act allows the FAA, on a case-by-case, the ability to grant entities the authorization to use certain unmanned aircrafts (i.e. drones) to perform commercial operations prior to the finalization of the Small UAS Rule. To date, the FAA has granted approximately 5,200 exemptions. All of this applies until a final rule for small drone operations is adopted. Right now, the proposed rule is still sitting in limbo – the comment period closed back in April 2015. Insurance companies may need to consider whether the employees who will operate the drones (presumably insurance adjusters) may need to get an airman certificate from the FAA.

Some state, county and municipal legislatures have passed (or have proposed) ordinances regulating the use of unmanned aircraft systems. Syracuse University’s Institute for National Security and Terrorism has a website that reportedly tracks the status of such legislation throughout the nation. Insurers considering the use of drones may need to keep in mind that local rules regarding the use of drones may vary from the federal regulations, and consider whether the federal law preempts state and local regulations. An interesting question also arises with respect to insurers operating under the National Flood Insurance Program, and whether those insurers would be subject to state and local regulations.

Drone operations may become a more feasible alternative for insurance companies during major catastrophes, and all businesses for that matter; the FAA says that the new rules will be in place soon (supposedly this summer) and the restrictions on commercial drone use may be alleviated a bit.

This post is also being shared on our Data Privacy + Security Insider blog. If you’re interested in getting updates on developments affecting data privacy and security, we invite you to subscribe to the blog.

What Constitutes an Unequivocal Denial of Coverage? New Jersey District Court Provides Some Guidance

Like most jurisdictions, New Jersey allows parties to an insurance contract to shorten the six-year statute of limitations for contract actions.  See N.J.S.A. 2A:14-1 (“Every action at law . . . for recovery upon a contractual claim or liability . . . shall be commenced within 6 years next after the cause of any such action shall have accrued.”).  Such suit limitations clauses may be worded differently but generally function in one of two ways – the suit limitation period begins to run from either (1) the date of loss; or (2) the date of denial of the claim.

So far so good.  However, in New Jersey (unlike most other jurisdictions), figuring out whether a limitation period has run is more complicated than simply counting whether 365 days have passed since the date of loss or denial of coverage.  Where the suit limitation period begins to run from the date of loss the limitations period is tolled (i.e., paused) during the time period after the insured gives notice of the loss until the insurer denies coverage.  See Peloso v. Hartford Fire Ins. Co., 56 N.J. 514, 520, 267 A.2d 498 (1970).  Therefore, the key question under both types of clause becomes – “What constitutes a denial?”

New Jersey law requires that a denial be “unequivocal” in order to start the clock running for purposes of a suit limitation condition.  For example, one New Jersey appellate court ruled that a denial letter was not “unequivocal” where it referenced the insured being able to submit additional information and suggested that the insured contact the New Jersey Department of Insurance (NJ DOI) if she disagreed with the insurer’s decision.  See Azze v. Hanover Insurance Co., 336 N.J. Super. 630, 765 A.2d 1093 (App. Div. 2001).  Crucially, in Azze the denial letter did not reference the suit limitations clause.  As a result, the Court held that the insurer’s denial of coverage could not be considered “unequivocal” from the standpoint of a “reasonable person.”

In Biegalski v. Farmers Ins. Co. of Flemington, 2016 U.S. Dist. LEXIS 57011 (D. N.J. April 29, 2016), the Court provided some guidance about what makes a denial unequivocal.  The insured sustained loss to her home as a result of combined wind and flood damage from Superstorm Sandy.  The insured settled with her flood insurance carrier.  The insured’s homeowner’s carrier (Farmers) denied the claim after determining the wind damage would not exceed the applicable deductible.  The Farmer’s policy required that an action be brought “within 12 months after our denial of either the entire claim or that part of the claim in dispute.”

Farmers’ denial letter informed the insured, in larger font, that she was required to file suit within one year of the letter.   Farmers also informed Plaintiff that she had the option of submitting her claim to an internal appeal panel at Farmers.  Plaintiff argued that Farmers’ reference to the internal appeal panel rendered the denial “not unequivocal.”  The Court disagreed, finding that the reference to the appeal panel was presented as an option, while Farmers had informed the insured of the suit limitation condition in clear, conspicuous language.

New Jersey Federal Court Confirms Application of Anti-Concurrent Causation Language in Hurricane Sandy Lawsuit

Readers of this blog may note that we have previously discussed the topic of anti-concurrent causation clauses in various jurisdictions around the country (see here, here, and here). As a quick reminder, an anti-concurrent causation clause is that prefatory language that precedes a list of excluded perils, and that generally provides that the policy “does not insure loss or damage directly or indirectly caused by, arising out of or resulting from” those enumerated perils, “regardless of any other cause or event contributing concurrently or in any sequence to the loss.”

In the wake of Hurricane Sandy, we highlighted an effort by a consumer group to block application of anti-concurrent causation clauses for Sandy losses on the grounds that “flooding” is typically an excluded peril, and that, were the clause to be applied, a large portion of the damage that occurred as a result of Sandy would not be covered under a typical first-party property policy. Now, more than three-and-a-half years after Sandy, more and more cases brought by homeowners against insurers are winding their way through the court system, and courts in those areas impacted by Sandy are being presented with important questions of policy interpretation on a host of issues, including the potential application of anti-concurrent causation language.

Such was the case in a recently decided federal lawsuit in New Jersey. In Keelen v. QBE Ins. Corp., 2016 U.S. Dist. LEXIS 55895 (D.N.J. Apr. 27, 2016), Plaintiffs owned a residential beach property located in Ortley Beach, New Jersey. The insured property suffered significant damage during Sandy that was at least partially caused when the house was knocked off of its foundation. Plaintiffs’ claim for wind damage was denied because the damage attributable to wind fell below the wind deductible, and because the insurer determined that the vast majority of the damage was not covered due to the policy’s exclusion for “water,” which included “flood,” “surface water,” “storm surge,” and “waterborne materials,” and which was preceded by an anti-concurrent causation clause.

Plaintiffs brought suit, and the defendant insurer moved for summary judgment. During the briefing of that motion, the parties appear to have agreed that a substantial portion of the damage to the insured property occurred when it was impacted by a neighbor’s house that had apparently escaped from its foundation and been pushed by the rising water onto Plaintiffs’ property. In granting the insurer’s motion for summary judgment, the Court noted that pre-Sandy New Jersey courts (at both the state and federal level) had upheld application of anti-concurrent causation clauses. The Court found that “Plaintiffs have not offered any evidence showing that storm surge did not, at least indirectly, cause the losses at issue,” and therefore concluded that the claim was not covered under the policy.

The Keelen decision is an important recognition of the continued applicability and enforceability of anti-concurrent causation language in New Jersey.

New York’s Second Department Holds That Omission of Exclusion in Declination Letter Does Not Operate As Waiver

On April 6, 2016, New York’s Second Department issued a decision in Provencal, LLC v. Tower Insurance Company of New York, 2016 N.Y. App. LEXIS 2529 (Apr. 6, 2016) holding that an insurer does not waive application of an exclusion in an insurance policy if the insurer omits the language of the exclusion in the declination letter. In Provencal, the parties stipulated that heavy rains and run off from a neighboring property caused the insured’s retaining wall to collapse. The insurer declined to make payment under the policy, but did not cite the flood/surface water exclusion in the declination letter as a basis for denying coverage. The insurer cited the exclusion as a basis for its motion for summary judgment, which was granted by the lower court. The insured stipulated that the exclusion would apply if it had been cited in the declination letter, but argued on appeal that the insurer should be precluded from relying on the exclusion if it was not cited in the declination letter.

The Second Department rejected the insured’s reliance on a body of case law applicable to third party liability coverage, which is based on “strict requirements” on the insurer to give “timely and detailed written notice if the insurer is disclaiming liability or denying coverage for death or bodily injury arising out of an accident” under N.Y. Ins. Law. § 3420 (d)(2). Because a first party property policy does not fall within the ambit of N.Y. Ins. Law § 3420, the dispositive issue becomes one of common law waiver and/or estoppel. The Second Department stated succinctly that waiver, defined as a voluntary and intentional relinquishment of a known right “does not apply here because the failure to disclaim based on an exclusion will not give rise to coverage that does not exist.” (internal quotations omitted). The court further found that the insurer was not estopped from relying on the flood/surface water exclusion because the insured could not establish that it had been prejudiced by the omission in the declination letter.

Despite this ruling, insurers will likely continue to cite all provisions of a policy that apply to a loss in a declination letter. While a New York court may not find that the insurer has waived its right to rely on a policy exclusion or condition, under appropriate circumstances, a court may find that an insurer is estopped from relying on the provision.

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