In Georgitsi Realty, LLC v. Penn-Star Ins. Co., 2013 N.Y. LEXIS 2857 (N.Y. App. Ct., October 17, 2013), Georgitsi Realty, LLC owned a four-story apartment building which it insured pursuant to a “named perils” policy issued by the defendant, Penn-Star Insurance Company. The policy provided coverage against “direct physical loss or damage . . . caused by or resulting from” certain specified perils including vandalism which was defined in the policy as “willful and malicious damage to, or destruction of, the described property.”
Armory Plaza, Inc., the owner of property adjacent to the plaintiff’s apartment building, began constructing an underground parking garage. The excavation for the parking garage caused cracks in the walls and foundation of the plaintiff’s apartment building. As the cracks became more pronounced the building began to settle and the plaintiff became concerned that the apartment building would collapse. In an attempt to stop the excavation work, the plaintiff obtained “stop work” orders, fines and even a temporary restraining order against Armory Plaza. These were all ignored and the excavation work continued.
Thereafter, the plaintiff submitted an insurance claim on the theory that the excavation work constituted vandalism as the term was defined under the subject policy. The claim was denied and the plaintiff brought suit in the New York Supreme Court. The case was removed to the United States District Court for the Eastern District of New York, which granted the defendant’s motion for summary judgment on the basis that the excavation work did not fall within the policy’s definition of vandalism. In response, plaintiff appealed to the Second Circuit Court of Appeals, which certified the following two questions to the Court of Appeals of New York:
(1) For purposes of construing a property insurance policy covering acts of vandalism, may malicious damage be found to result from an act not directed specifically at the covered property?
(2) If so, what state of mind is required?
With respect to the first certified question, the Court of Appeals concluded that there was no reason that the term vandalism should be limited to acts directed specifically at covered property. According to the Court of Appeals, whenever the insured’s damage naturally and foreseeably results from an act of vandalism, a vandalism clause in an insurance policy should cover it. Moreover, while the Court of Appeals acknowledged that the present case did not present a traditional vandalism scenario it saw no principled distinction between an excavator who is paid to dig a hole and does so in conscious disregard of likely damage to the adjacent building and an irresponsible youth who digs a hole on the same property, with the same result, “whether in search of buried treasure or just for fun.”
With respect to the second certified question, the Court of Appeals concluded that the state of mind necessary to establish “malice” for purposes of the “vandalism” definition is the same standard used by New York courts when determining whether to award punitive damages. Specifically, the Court of Appeals explained that conduct is “malicious” when it reflects a “conscious and deliberate disregard of the interests of others that [it] may be called willful or wanton.” According to the Court of Appeals, this standard serves to distinguish between acts that may fairly be called vandalism and ordinary tortious conduct, thereby preventing insurance for vandalism from being “converted into something approaching general coverage for property damage.”
The dissent, authored by Judge Abdus-Salaam, took issue with the majority definition of “malicious,” which she argued omitted a critical component: the intent to damage property. The dissent stated that in order to recover under a policy insuring against a loss caused by vandalism, the insured must prove that the damage was caused by a malicious act intended to damage property, even if not the insured’s specific property. (Emphasis added.) According to the dissent, this additional element would prevent vandalism coverage from extending to willful and malicious acts not properly categorized as vandalism because property damage was not the actor’s primary intent.