New York Insurance Coverage Law Update

July 30, 2020 | Insurance Coverage

New York Court Reaffirms That Contractor’s Defective Work Is Not A Covered “Occurrence”

Anthony and Sandra Tamer hired RD Rice Construction (“Rice”) as a general contractor to gut and rebuild their combined residential co-operative units. After Rice and its subcontractors completed the renovation work, the Tamers complained of a draft so Rice returned and installed insulation as a service/warranty item.  In turn, a HVAC unit pipe broke, causing water damage, including to the custom flooring installed as part of the project. The Tamers’ homeowners insurer, AIG, paid for the water loss, filed a subrogation action against Rice, obtained a judgment against Rice which went unsatisfied, and then filed a direct action against Rice’s general liability insurer that had disclaimed coverage. The New York Supreme Court, New York County, upheld the general liability insurer’s disclaimer, reasoning that a claim against a general contractor for defective workmanship resulting in damage to the contractor’s work on the project is not a covered “occurrence” under a general liability policy. The court stressed that New York precedent demonstrates that general liability policies “do not cover as occurrences defective workmanship claims unless the defective workmanship causes damages to property that is outside the scope of the insured’s construction project.”   The court was not persuaded by out-of-state cases finding coverage because the so-called Your Work Exclusion has an exception for work by subcontractors. [RD Rice Constr., Inc. v. RLI Ins. Co., 2020 N.Y. Misc. LEXIS 1991 (N.Y. Sup. Ct., N.Y. Cnty May 7, 2020)].

Court Finds Multiple Occurrences Where Fire Rekindled Next Day In Another Area

The insureds, well-known artists, kept paintings in their condominium unit.  There was a fire on the second floor of an adjoining building, and a rekindling of the fire on the third floor of the adjoining building during the next day.  The insureds sought insurance coverage for smoke and water damage to their paintings under a property policy issued by MetLife.   The policy provided coverage for loss to personal property in the amount of $75,300 per “occurrence”, defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions….”  The insureds maintained that there were two occurrences entitling them to recover up to two policy limits.  The New York Supreme Court, New York County, agreed with the insureds, stating that policy terms must be considered with the “temporal and spatial relationship between the incidents and the extent to which they were a part of an undisrupted continuum to determine whether they can, nonetheless, be viewed as a single unfortunate event – a single occurrence”.  The court concluded that there were two occurrences under the circumstances but found a question of fact as to whether the paintings were covered personal property or business property to be sold by the insureds.  [Humphries v. Metropolitan Prop. & Cas. Ins. Co., 2020 N.Y. Misc. LEXIS 2663* (N.Y. Sup. Ct., N.Y. Cnty May 26, 2020)].

Failure to Submit A Proof Of Loss Within 60 Days After Receipt Of Insurer’s Notice Deemed Absolute Defense To Action On The Policy

National General Insurance Company paid its insured $30,000 for a water loss under a homeowners policy.  In turn, the insured’s public adjuster estimated the loss at $405,000 and advised the insurer’s third-party administrator of the discrepancy.   The insurer disclaimed based on the insured’s failure to submit a signed proof of loss within 60 days of the insurer’s request as required by the policy.  The insured sued.  The court granted the insurer’s motion to dismiss, finding that the insurer’s documentary evidence showed that the insured failed to file a proof of loss within 60 days after receipt of his insurer’s demand which was an absolute defense to the insured’s claim for coverage under the policy.  The court rejected the insured’s argument that the insurer improperly failed to send its proof of loss demand to the insured’s public adjuster, stressing that New York Insurance Law §3407 only requires that the demand be made upon the insured. [Stein v. N.Y. National Gen. Ins. Co., 2020 N.Y.L.J. LEXIS 1047 (N.Y. Sup. Ct., N.Y. Cnty. June 22, 2020)].

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