The Southern District Finds Unambiguous Policy Language Controls NYU’s Superstorm Sandy Claim

The United States District Court for the Southern District of New York recently granted an insurer’s motion for summary judgment in a case arising from Superstorm Sandy based on unambiguous policy language providing a significantly lower limit of liability for losses resulting from flood damage. In New York University v. Factory Mutual Insurance Co., 2019 U.S. Dist. LEXIS 45105 (S.D.N.Y. March 19, 2019), the court agreed with Factory Mutual (FM) that the policy’s $250 million and $40 million sublimits for flood damages applied to New York University’s (NYU) claim, rather than the policy’s $1.85 billion overall limit.

Superstorm Sandy inflicted damage to several NYU properties, including certain buildings associated with the university’s hospital and medical school. Those damages resulted in sizeable time element—or, business interruption—losses as well as losses under the policy’s additional coverages. FM and NYU agreed that the policy provided coverage but disagreed over which of its limits and sublimits applied to NYU’s claims. FM read the policy to limit losses attributable to flood damage at NYU’s hospital and medical school to $40 million and capped its payments accordingly. NYU read the policy to apply only its overall $1.85 billion aggregate limit to the school’s claims. NYU ultimately brought an action consisting of five counts for declaratory judgment and one breach of contract count claiming FM wrongfully limited coverage.

The dispute centered on which of three limits of liability applied to time element losses and losses subject to the policy’s additional coverages: a $1.85 billion overall coverage limit, a $250 million subsidiary aggregate limit for losses attributable to flood (flood limit), and a $40 million sublimit for flood damage suffered at NYU’s hospital and medical school (flood sublimit).

Relying on the policy’s unambiguous language, the court “easily dispensed with” NYU’s argument that the $1.85 billion overall limit applied. The policy provided that “limits of liability in an [o]ccurrence apply to the total loss or damage at all [l]ocations and for all coverages involved, including any insured time element loss.” The court found this language “unambiguous in subjecting time element claims to the limit of liability for flood, as well as its sublimit.” Moreover, the policy’s time element coverage section “plainly stat[ed] that recovery for ‘time element loss . . . is subject to the applicable limit of liability that applies to the insured physical loss or damage.’” Accordingly, the court held that NYU’s time element loss claims were subject to the $40 million sublimit specific to NYU’s hospital and medical school.

The court also held that NYU’s claims under the policy’s additional coverages were subject to the flood sublimit based on the same unambiguous policy language. Given that language, the court rejected NYU’s argument that, under the expressio unis canon of construction, the lack of specific references to the sublimits within the policy’s time element and additional coverages sections implied that only the overall $1.85 billion limit should apply to the school’s claims. “Rather,” the court reasoned, “consistent with the general principle [under New York law] that interpretive tools need not be deployed when the contract is unambiguous, expressio unius should not be applied to create ambiguity where none would otherwise exist.”

The decision demonstrates how unambiguous policy language may literally make a billion dollar difference in coverage.

District of New Jersey Applies Anti-Concurrent Causation Provision to Superstorm Sandy Claim

In a recent decision arising out of Superstorm Sandy, the United States District Court for the District of New Jersey confirmed the enforceability of anti-concurrent causation provisions.  Zero Barnegat Bay, LLC v. Lexington Ins. Co., No. 14-cv-1716, 2019 U.S. Dist. LEXIS 43625 (D.N.J. Mar. 18, 2019).

In Barnegat Bay, the insured sought coverage for damages suffered as a result of Superstorm Sandy.  Lexington inspected the property and concluded that high winds caused damage to roof shingles, windows, ceilings and walls.  Lexington determined that the damage amounted to $17,344.79 – an amount below the insured’s deductible.

The insured hired its own inspector, who concluded that the wind damage amounted to $466,550.57, which included damage to the same areas identified by Lexington’s inspector (although plaintiff’s inspector attributed a higher value to such damage) in addition to the insured’s pool, a boardwalk, and an electrical transformer.  The insured engaged a causation expert, who concluded that first wind, then flooding, caused damage to the additional property.

Lexington moved for summary judgment with respect to the claimed pool, boardwalk and transformer damage based on the fact that the insured’s own expert’s analysis that damage to these items involved flood damage, and the applicable policy contained an anti-concurrent causation provision which excluded from coverage losses caused “directly or indirectly” by water damage, “regardless of any other causo [sic] or event contributing concurrently or in any sequence to the loss.”  The court held that New Jersey law applies such provisions to exclude coverage for losses caused by flood, even when the flood acts concurrently or sequentially with a covered peril.

Zero Barnegat Bay reaffirms that anti-concurrent causation provisions are potentially applicable even where one cause of loss damages the property prior to damage caused by the excluded loss.

Failure to Cooperate and Misrepresentation: New York Federal Court Grants Summary Judgment Finding Insured Explanations for False Statements “Dubious”

While issues of fact can preclude summary judgment in some cases involving failure to cooperate and misrepresentation, a New York federal court recently granted summary judgment to an insurer in this context. In D’Andrea v. Encompass Ins. Co. of Am., No. 15-CV-467-MJR, 2018 U.S. Dist. LEXIS 146446, 2018 WL 4095098 (W.D.N.Y. Aug. 28, 2018), the insured was seeking property insurance coverage for a fire loss that occurred at a two-unit residence purportedly owned by the insured and rented to tenants. In submitting his insurance claim, the insured provided three sworn statements in proof of loss, including one for the loss of the dwelling and one for loss of use of the dwelling. The dwelling proof of loss requested $225,000 in damages and listed the insured as the owner of the premises. Continue Reading

Period of Restoration and Extended Business Interruption Coverage: District of New Jersey Decision Provides Useful Insight

The United States District Court, District of New Jersey recently issued a decision that is helpful in defining the scope of business interruption coverage with respect to “period of restoration” and extended business income coverage. Milk Indus. Mgmt. Corp. v. Travelers Indem. Co. of Am., 2018 U.S. Dist. LEXIS 147743 (D.N.J. Aug. 30, 2018).

The insured in Milk Indus. was a distributor of dairy and other food products. The insured contracted with a supplier of dairy and food products, whereby the insured obtained the right to warehouse and distribute the supplier’s products for a period of five years, and this term automatically renewed for subsequent two year periods (the “Agreement”). The insured then subcontracted its obligation to warehouse the products under the Agreement to a third party (the “Subcontractor”). Continue Reading

Residence Premises Condition: New York Trial Court Grants Summary Judgment Based On a Finding of A “Feigned” Affidavit

A New York trial court recently granted an insurer’s motion for summary judgment pursuant to the “Residence Premises Condition” contained in a homeowner’s insurance policy.  Aschmoneit v. Adirondack Insurance Exchange, 2018 N.Y. LEXIS 3418 (August 7, 2018), The court found that the insured did not reside at the home despite an affidavit asserting that he spent “most weekends” making repairs to the home.

On May 24, 2013, a fire occurred at the insured’s home resulting in $150,000 of alleged damages. Adirondack Insurance Exchange (AIE) denied the insured’s claim for coverage on the ground that he did not reside at the property. AIE’s determination was based, in part, on the fact that gas bills showed no gas usage for winter months.  The insured filed suit.

In response to the insurer’s motion for summary judgment, the insured submitted an affidavit stating that he was at the property on a regular basis, “including most weekends,” he performed construction work there, and he stored personal items, fixtures, and furniture on site. In New York, the standard for determining residency “requires something more than temporary or physical presence and requires at least some degree of permanence and intention to remain.”  Dean v. Tower Ins. Co. of New York, 19 NY3d 704, 708,979 N.E.2d 1143, 955, N.Y.S.2d 1143, 955 N.Y.S.2d 817 (2012). Notwithstanding the affidavit, the Court held that that the insured’s alleged intention to reside at the home was insufficient to satisfy the policy’s Residence Premises Condition.

In addition, the court noted that the insured failed to produce evidence to buttress his assertions that he spent most weekends at the home. Specifically, the court noted that the insured “fails to reconcile the discrepancy between his purported weekend use . . .  and the lack of gas service during the winter months of his reported occupancy.” In light of these facts, the court stated that the insured’s affidavit “must be viewed as presenting a feigned factual issue . . . .”

The decision in Aschmoneit demonstrates, once again, that self-serving affidavits that do not comport with real evidence may be regarded with skepticism, and may not offer sufficient grounds to oppose a summary judgment motion.

District of New Jersey Finds Post-Denial Communications By Insurer’s Counsel Insufficient to Sustain Bad Faith Claim

Under New Jersey law, an insurer cannot be held liable for bad faith in denying an insurance claim if the claim is “fairly debatable.” Therefore, unless a plaintiff can establish a right to summary judgment on the underlying cause of action for breach of contract, the coverage denial is considered “fairly debatable” and the court must dismiss the bad faith claim. See Pickett v. Lloyd’s, 131 N.J. 457, 473 (1993); Tarsio v. Provident Ins. Co., 108 F. Supp. 2d 397, 401 (D.N.J. 2000). Continue Reading

Scope of Recoverable Damages: District of New Jersey Finds Insureds Not Entitled to Replacement Cost Value Until Damaged Property is Repaired or Replaced

Property insurance policies typically require that the insured repair or replace damaged property before recovering on a replacement cost value (RCV) basis. Until then, the insured is entitled only to the actual cash value (ACV) of the damaged property. The U.S. District Court for the District of New Jersey recently decided a case involving the proper method of calculating the insureds’ loss under a homeowners’ insurance policy following damage to the insureds’ property from Superstorm Sandy. In Giacobbe v. QBE Speciality Ins. Co., 2018 U.S. Dist. LEXIS 77076 (D.N.J. May 8, 2018), the plaintiff insureds contended that they were entitled to the RCV of the damaged property despite the fact that they had not repaired or replaced the property. The insurer moved for summary judgment, arguing that the plaintiffs were entitled only to ACV and that the Plaintiffs failed to offer sufficient proof of damages, i.e., that the ACV exceeded what the insurer paid. Continue Reading

Late Notice in Florida: Appellate Court Affirms Finding of No Coverage Where Insurer Prejudiced In Determination of Extent of Damage

Notice provisions in property insurance policies typically require the insured to promptly provide notice of a loss to the insurer. Despite the plain language requiring prompt notice, some jurisdictions require that an insured’s late notice cause some prejudice to the insurer in order to make a finding of no coverage. The court’s decision in De La Rosa v. Fla. Peninsula Ins. Co., 2018 Fla. App. LEXIS 6893 (Fla. Dist. Ct. App. May 16, 2018), demonstrates the consequences of failing to provide prompt notice that resulted in prejudice to the insurer.  Continue Reading

Computer Fraud Policy: Eleventh Circuit Affirms District Court’s Finding Of No Coverage For $11M Fraud Claim

In Interactive Communities Int’l v. Great Am. Ins. Co., 2018 U.S. App. LEXIS 12410 (11th Cir. May 10, 2018), the insured sold “chits,” which have a specific monetary value and can be redeemed by loading their monetary value to a debit card. In order to redeem the chits, consumers could call into a computerized interactive voice response (IVR) system, type in a PIN, and have the funds loaded onto their debit card. Fraudsters identified a glitch in the IVR that allowed them to redeem the same chit several times by making multiple simultaneous calls to the IVR system. This caused the insured to suffer over $11 million in losses. The insured submitted a claim pursuant to the Computer Fraud policy, which provided coverage for “loss of, and loss from damage to, money, securities and other property resulting directly from the use of any computer to fraudulently cause a transfer of that property ….” Great American denied the claim, and the insured filed suit. The Northern District of Georgia, sided with Great American, finding: (1) the loss did not involve “use” of a computer; and (2) the loss did not “result directly” from use of any computer. Continue Reading

Vacancy Exclusion: Eleventh Circuit (Florida) Weighs In On “Dwelling Being Constructed” Exception

Vacancy exclusions are commonplace in many homeowner policies, and typically exclude coverage for certain types of losses if the home is vacant and/or unoccupied. Litigation involving vacancy exclusions can arise when terms in the provision are not defined and an insured claims the terms are ambiguous.

In Jarvis v. GeoVera Specialty Ins. Co., 2018 U.S. App. LEXIS 11762 (11th Cir. May 3, 2018), the insured rented a house for several years and when the tenant vacated, the insured paid a handyman about $5,000 to repair drywall, a small roof leak, and some plumbing. During this time, there were major appliances in the home, but no furniture, and nobody lived in the home.  Three months after the tenant moved out, a third party intentionally set fire to the home. The insured submitted an insurance claim, and GeoVera declined to cover the loss based on the vacancy exclusion, which excluded loss due to “vandalism and malicious mischief if the dwelling had been vacant or unoccupied for more than 30 consecutive days immediately before the loss.” The insured sued, alleging that the policy provision stating that “a dwelling being constructed is not considered vacant or unoccupied” applied, excepting the loss from the vacancy exclusion. The Middle District of Florida agreed with GeoVera, finding the exception inapplicable to renovations, repairs, or refurbishments. Continue Reading

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