When does an excluded loss end and a covered “resulting loss” begin? This thorny question was the subject of a recent decision out of the Southern District of Texas, EMS USA, Inc. v. The Travelers Lloyds Insurance Co., No. H-16-1443, 2018 U.S. Dist. LEXIS 54509 (S.D. Tex. Feb. 28, 2018), adopted by EMS, USA, Inc. v. Travelers Lloyds Ins. Co., 2018 U.S. Dist. LEXIS 52884 (S.D. Tex., Mar. 29, 2018). EMS involved a builder’s risk policy that covered a natural gas pipeline construction job in southeast Texas. The insured, the pipeline contractor, had through a subcontractor, drilled a “pilot hole” for the pipeline. The next step was to widen the pilot hole to accommodate the pipeline. This operation involved using a reamer attached to a guide wire that directed the operation. When the guide wire broke, the reamer was stuck in the pilot hole and could not be removed, and a new pilot hole had to be excavated. Travelers denied coverage for the cost of attempting to salvage the first pilot hole, and redrilling the second, arguing that the loss was not covered because (1) the pilot hole was “land” that was not covered under the policy; (2) the hole had not suffered “direct physical loss or damage” as required by the policy’s coverage grant; and (3) the loss, even if within the grant of coverage, fell under the policy’s exclusion for faulty workmanship. Continue Reading
A typical claim for a homeowner will involve some type of damage to the property, which, in turn, prompts the insurer to perform an inspection of the insured property, so as to assess the cause and extent of the alleged damage. Depending on the nature of the claim, insurers may be able to have a solitary claims professional perform the inspection in a rather minimal amount of time, but that is not always the case. In particular, when an insured has claimed damage to the property’s roof, the claims professional may need assistance in gaining access to the roof—perhaps requiring a ladder assist—or otherwise will need to use caution in assessing the claim, which can be time consuming. Continue Reading
Typical first party property policies include provisions that address failure to maintain heat as excluded losses. The Eastern District of New York recently analyzed a specific endorsement requiring that heat be maintained at a particular temperature.
In Read Prop. Group LLC v. Hamilton Ins. Co., No. 16-4573, 2018 U.S. Dist. LEXIS 54734 (E.D.N.Y. Mar. 30, 2018), a loss occurred when pipes froze and burst, causing water damage at one of 362 properties insured by the policy. The court determined that the policy’s Protective Safeguards—Heat Maintained Endorsement consisted of “two distinct yet related provisions.” The first “imposes a duty on the insured and a condition precedent to coverage by requiring the insured ‘to maintain an ambient temperature of not less than 50° Fahrenheit at all times throughout any [insured] building.’” The court found that the second provision “conditions the insurer’s performance under the insurance contract on the existence of an ambient temperature not less than fifty degrees Fahrenheit.” The court rejected the Plaintiff’s argument that the term “maintain” as used in the first paragraph is ambiguous and should include a “reasonable care” standard, and determined that “it is unreasonable to interpret the first provision as imposing anything less than an absolute duty on the insured.” The court also determined that the second paragraph “expressly and unconditionally excludes coverage for sprinkler leakage, weight of snow, or water damage if the temperature was less than fifty degrees Fahrenheit for any reason at the time of the loss, regardless of the insured’s efforts to comply with the condition.” Finally, the court rejected the insured’s argument that the policy language was unenforceable on public policy grounds, stating that there is a “reluctance to find insurance policy clauses violative of public policy [which] results from the strong tradition of freedom of contract that is deeply rooted in [New York’s] public policy.” Because it was undisputed that the pipes in the insured premises froze, and that the freezing point of water is 32 degrees Fahrenheit, the court granted summary judgment to the insurer.
The Read case provides useful insight as to how an insured’s unreasonable attempt to create an ambiguity in an insurance policy will be rejected by a thorough analysis of all policy provisions.
The “Water Damage” exclusion incorporated in many property insurance policies is the subject of much litigation, including the scope and applicability of the “surface water” exclusion to various water damage scenarios. The New York Appellate Division, Fourth Department recently interpreted the application of the “surface water” exclusion where the source of water was not from natural precipitation. This is the second New York decision to interpret the meaning of “surface water” in the context of a property insurance policy. Continue Reading
Many typical homeowner’s insurance policies contain an exclusion for damages as a result of freezing unless the homeowner uses “reasonable care” to maintain heat in the home. While this can be a fact-specific inquiry, the Third Circuit, applying Pennsylvania law, recently upheld a district court’s grant of summary judgment to an insurer, finding no issue of material fact. Jugan v. Econ. Premier Asur. Co., 2018 U.S. App. LEXIS 7218 (3d Cir. Mar. 12, 2018).
The Jugans reported a water loss to Met Life upon discovery in March 2015. The consultant retained by Met Life concluded that the cause of the water infiltration was due to a frozen dishwasher solenoid valve, which was due to insufficient heat within the home (attributed to the low setting found on the thermostat hot water baseboard heat). It was undisputed that outdoor temperatures in and around the date of discovery were sufficient to cause pipe system freeze ups. Continue Reading
Insurers retain outside counsel during claim investigations for a variety of reasons, including, among others, providing coverage advice, assisting in reviewing and responding to communications with insureds that have legal implications, and providing settlement recommendations. When coverage disputes arise, policyholders often seek the production of these pre-suit communications, arguing that outside counsel was merely performing an investigation that the company was required to conduct as part of the ordinary course of its business, and that such communications are therefore not privileged. These arguments have routinely been rejected by courts. Continue Reading
We have written on the topic of late notice a number of times. Typical property insurance policies require that the insured notify its carrier of a loss promptly. The purposes of such a provision include allowing an insurer to investigate a claim close in time to the occurrence so as to ensure that it is able to gather all the relevant facts associated with the reported loss and to ensure that it has adequate reserve funds in place. A federal court in New York recently determined that a four month delay in notifying an insurer of a loss was too late and that the insurer need not establish that it suffered prejudice as a result of the delay. Continue Reading
Two appellate courts recently examined the scope of a homeowners policy’s requirement that the insured reside at the property at the time of loss. Both cases involve claims of loss involving a house fire, and in both cases, claims were denied on the basis that the homeowner was not residing at the property at the time of loss. Both court decisions agree that where the homeowners policy requires that the homeowner reside at the property, evidence of simultaneous residence in multiple houses does not necessarily defeat the insured’s claim. However, evidence of actual residence is required. Continue Reading
Recently, in Mallek v. Allstate Indem. Co. No. 17-CV-5949-KAM-SJB, 2018 U.S. Dist. LEXIS 42171 (E.D.N.Y. Mar. 12, 2018), a federal magistrate in New York recommended that the Court deny a plaintiff’s motion to remand and suggested that removal was proper where the plaintiff “fraudulently” joined an insurance agent. Oftentimes, coverage actions involve a plaintiff suing a national insurance company, where neither are citizens of the same state, and therefore, the case may be eligible for removal under 28 U.S.C. § 1332. However, some plaintiffs have included local agents of the insurance company—like a claims professional who handled their claim—as named-defendants, along with the insurer, in an attempt to defeat complete diversity between a local plaintiff and a national insurance carrier. Continue Reading
The Massachusetts reference process is a creature of statute designed to provide an expeditious method to resolve disputes over the amount of loss covered by a property insurance policy. While a reference panel cannot decide coverage issues, its calculation of the amount of loss is “conclusive and final” under the governing statute, and courts have concluded that such an award is not subject to challenge except on grounds such as fraud, collusion, or bias. The United States District Court for the District of Massachusetts recently affirmed the finality of a reference award in Bearbones, Inc. v. Peerless Indemnity Ins. Co., Civil Action No. 3:15-cv-30017 (KAR) (D. Mass. Oct. 17, 2017).
Bearbones involved a burst water pipe at a commercial bakery in Pittsfield, Massachusetts that caused physical damage to the bakery’s building and business personal property and interrupted its business operations. After receiving notice of the loss, Peerless conducted an investigation and issued payments totaling $32,496.08 for building and business personal property losses. Continue Reading