New York Insurance Coverage Law Update

No Coverage For Claims Stemming From Lawyers’ “Hybrid” Law And Business Activities On Client’s Behalf

A client sued a law firm, its partners, and a separate limited liability partnership (the “LLP”) in which she claimed one of the firm’s partners was the “managing member.” The client asserted that the attorneys had induced her to proceed with certain financial transactions with respect to the LLP in which they had an interest, without recommending that she obtain independent legal counsel, even though their interests and her interests were adverse. The court agreed with the lawyers’ professional liability insurance carrier that it did not have to defend the firm or the partners against the client’s malpractice/negligence claims because of the “Insured Status” and “Business Enterprise” exclusions in their professional liability policy. The court found that the lawyers’ activities on the client’s behalf were of a “hybrid nature” – legal and business. The partner who was a principal of the LLP and who was representing the client was “simultaneously serving two masters,” the court declared. This was “precisely the situation” that the policy’s exclusions excluded from coverage, the court concluded. [Lee & Amtzis, LLP v. American Guar. & Liab. Ins. Co., 2015 N.Y. Slip Op. 02919 (App. Div. 1st Dep’t April 7, 2015).]

Appeals Court Upholds Insurer’s Method Of Calculating Cash Value Of Insured’s Fire Losses

After the insured filed a claim under a fire insurance policy, the insurer paid the actual cash value for the loss and for eight months of business interruption. The insured sued for more. The trial court granted the insurer’s motion for summary judgment. The insured appealed, arguing that the trial court had erred in granting the motion inasmuch as the insurer had not met its burden of proof with respect to the actual cash value of the loss.  The appellate court disagreed, finding that the insurer had submitted sufficient evidence such as the purchase price of the property, the cost of improvements to the property, the assessed value of the property, and the amount expended to repair and restore the property.  Moreover, the court found that the insurer fulfilled its obligations as to business interruption payments because the business  interruption coverage only applied during restoration, yet the insured made no effort to restore the  premises during the eight months such payments were made, despite receiving an actual cash value payment within 3 ½ months of the loss.   [Dog Day’s, Inc. v. Hartford Fire Ins. Co., 2015 N.Y. Slip Op. 02255 (App. Div. 4th Dep’t March 20, 2015).]

Insurer’s Disclaimer To Additional Insured After Investigation Was Not Unreasonably Late, Court Decides

An insurer disclaimed coverage by letter dated November 21, 2011 to its named insured and by letter dated January 29, 2013 to Adelphi Restoration Corp., an additional insured.   The additional insured argued that the disclaimer to it was late because the application of the exclusions  relied upon was apparent from the earlier tenders.  The court found that the insurer’s delay in disclaiming was reasonable because the insurer had conducted an investigation as to Adelphi’s status as an additional insured and had not confirmed that Adelphi was an additional insured until January 28, 2013, when it received a copy of the written contract requiring that its named insured procure insurance for Adelphi. [Endurance Am. Specialty Ins. Co. v. Utica First Ins. Co., 2015 N.Y. Slip Op. 02706 (App. Div. 1st Dep’t March 31, 2015).]

Flood Exclusion Bars Law Firm’s Claim For Business Income Payments, Federal Court Holds

A law firm with an office in lower Manhattan sought coverage for loss of business income after Superstorm Sandy.  Its policy covered such loss when access to the premises is “prohibited by order of a civil authority as the direct result of a Covered Cause of Loss.”  The policy excluded loss caused directly or indirectly by flooding.   The firm asserted that it could not access its offices for more than two months after the mayor issued evacuation orders and that its building had not flooded.  However, the court agreed with the insurer that the flood exclusion in the firm’s policy precluded coverage for the firm’s claim. The court noted that it was “undisputed that Sandy flooded parts of Manhattan” and that this flooding directly caused the mayor to issue various evacuation orders that prohibited the firm from occupying its offices. The court concluded that because the evacuation orders were the direct result of flooding in the area encompassing the firm’s offices, the orders were not the direct result of a “Covered Cause of Loss to property in the immediate area.” [Bamundo, Zwal & Schermerhorn, LLP v. Sentinel Ins. Co., Ltd., No. 13-cv-6672 (RJS) (S.D.N.Y. March 27, 2015).]