The Protective Safeguards—Heat Maintained Endorsement Means What it Says: Eastern District of New York Grants Summary Judgment For Loss From Frozen Pipes

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 Exclusion: New York’s Fourth Department Interprets The Definition of Surface Water

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

Freezing Exclusion: Third Circuit Affirms District Court’s Grant Of Summary Judgment To Insurer

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

Work Product and Attorney-Client Privilege Concerning Documents Drafted Prior To Litigation: Eastern District Of New York Finds Insurer’s Documents Are Not Discoverable

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

Late Notice in New York: Federal Court Finds No Prejudice Required In First Party Context

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

The Definition of “Reside” Under Homeowners’ Policies in Michigan and New York: Two Appellate Courts Provide Further Insight

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

Eastern District of New York Magistrate Recommends Denial of a Motion to Remand and Recognizes the Application of the Fraudulent Joinder Doctrine, Even in the Face of the “Forum Defendant Rule”

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

Massachusetts Reference Award and Alleged Chapter 93A Violation Addressed By Federal District Court Opinion

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

Eastern District of New York Upholds Flood Exclusion in Superstorm Sandy Case

Nearly five years after Superstorm Sandy, some consistent themes are beginning to emerge from the increasingly robust body of property coverage case law related to the storm. A recent decision from the Eastern District of New York addresses a topic that this Blog has covered before – the application of flood exclusions in traditional open peril policies.

The Madelaine Chocolate Company was a manufacturer of seasonal foil-wrapped chocolates insured under an “open peril” business policy issued by Great Northern Insurance Company. Purported to be one of the largest private employers in Queens, New York, Madelaine Chocolate conducted its business in three buildings located in Rockaway Beach. During Superstorm Sandy, the facility was inundated with four feet of water from both Long Island Sound to the north and the Atlantic Ocean to the south. After the storm, Madelaine Chocolate made a $40 million property damage claim and a $13.5 million business income/extra expense claim. Great Northern paid Madelaine Chocolate $4 million and denied the remainder of the claim based on the policy’s flood exclusion. Continue Reading

Hurricane Harvey, the Texas Supreme Court, and Anti-Concurrent Causation

Many commercial and residential property insurance claims arising from major hurricanes like Hurricane Harvey present damage caused by multiple causes of loss, some of which may be covered (e.g., wind) and some of which may not (e.g., flood). One of the recurrent legal issues in these multiple causes of loss claims is the treatment of anti-concurrent causation clauses under the applicable state law.

The Texas Supreme Court addressed the enforceability of an anti-concurrent causation clause for the first (and to date, only) time in JAW the Pointe, LLC v. Lexington Ins. Co., 460 S.W.3d 597 (Tex. 2015) (“JAW”). The anti-concurrent clause at issue in that case provided that: “We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss.” JAW, 460 S.W.3d at 604 (emphasis added). Continue Reading

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