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.