New York Insurance Coverage Law Update

August 30, 2021 | Insurance Coverage

Court Declines To Rescind Policy Based On Issues Of Fact As To Materiality Of Alleged Misrepresentations

Union Mutual disclaimed coverage for a fire loss at its insured’s restaurant and sought to rescind its policy based upon the insured’s alleged misrepresentations in its application that it did not have “open flame cooking” or a Single Room Occupancy.  In denying Union Mutual’s motion for summary judgment, the court noted that under New York law,  “no misrepresentation shall be deemed material unless knowledge by the insurer of the facts misrepresented would have led to a refusal by the insurer to make such contract” and an “answer to an ambiguous question on an application for insurance cannot be the basis of a claim of misrepresentation by the insurance company against its insured where a reasonable person in the insured’s position could rationally have interpreted the question as he or she did”.  Even though the insured used a standard cooking stove and had an apartment unit at the premises, the court found issues of fact for trial as to whether the insured made material misrepresentations.  The court noted that Union Mutual’s Underwriting Guidelines were unclear as to what is meant by “open flame cooking” or Single Room Occupancy and whether having either one would have resulted in Union Mutual not issuing the policy.   In addition, Union Mutual conducted an inspection of the premises more than a year before the fire but did not find anything warranting rescission.  Under these circumstances, the court found issues of fact for trial as to whether the insured made material misrepresentations warranting rescission.  [463 Saddle Up Tremont LLC v. Union Mut. Fire Ins. Co., 2021 N.Y. Misc. LEXIS 3551, (N.Y. Sup. Ct., Bronx Cnty. June 11, 2021).]

SDNY Holds That Exclusion Could Not Be Waived But Did Not Apply In Any Event

Evanston Insurance Company defended its insureds in an underlying action under a Professional Liability Policy for five years before issuing a disclaimer on the basis that the “intentional conduct” claims remaining in the action were not covered.   The insureds sued and argued that Evanston waived its right to disclaim. The United States District Court for the Southern District of New York held that “where the issue is the existence or nonexistence of coverage (e.g., the insuring clause and exclusions), the doctrine of waiver is simply inapplicable” under New York law.  The court also noted that estoppel did not apply because, among other things, the insureds had not adduced enough evidence to demonstrate that they were prejudiced by Evanston’s delayed disclaimer of coverage, especially considering that the record did not reflect that Evanston controlled the insureds’ defense or interfered with the strategies of the defense counsel retained by the insureds.  In turn, the court concluded that the “intentional act” and “conversion” exclusions did not preclude a duty to defend because certain remaining allegations sounded in negligence. The court concluded that the insureds’ motion with respect to Evanston’s duty to indemnify should be denied as premature.  [Wentworth Group v. Evanston Ins. Co., 2021 U.S. Dist. LEXIS 126873 (S.D.N.Y. July 8, 2021).]

Disappearance of Large, Heavy Item May Satisfy Physical Evidence Requirement For Claim Of Stolen Property, Court Rules

The insureds (who were in the collectible stamp business) moved their warehouse and discovered that a cabinet full of stamps was missing.  They sought cover-age from Aspen American Insurance, which denied coverage on the grounds that one of the insureds was not listed on the policy and an exclusion for “missing property where the only proof of loss is unexplained or mysterious disappearance of covered property…or any other instance where there is no physical evidence to show what happened to the covered property.”  The insureds filed a declaratory judgment action and the parties moved for summary judgment.  After determining that the policy should be reformed to add the unnamed insured to reflect the parties’ intentions in the insurance application, the court found a question of fact as to whether the stamps were stolen property because the disappearance of a large, heavy item, such as the missing cabinet, and the claim of theft, may satisfy the physical evidence requirement necessary to establish a claim of stolen property.  [Inter-Governmental Philatelic Corp. v. Aspen Am. Ins. Co., 2021 N.Y. Misc. LEXIS 4084 (Sup. Ct., Kings Cnty. June 24, 2021).]

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