New York Insurance Coverage Law Update

August 26, 2022 | Insurance Coverage

Southern District Holds That Claim For Unjust Enrichment Not Covered Claim For “Property Damage”

The owners of a Manhattan apartment hired Zale Contracting to renovate their apart-ment.  After the apartment’s sprinkler system failed, Zale, with the owners’ consent, allegedly repaired the damage caused by the failure and purchased and installed new materials, resulting in additional costs of $280,000.  When the owners refused to pay, Zale sued them for “unjust enrichment.”   The owners tendered the suit to their homeowners insurer, Executive Risk Indemnity, which disclaimed, and the owners filed a declaratory judgment action. The United States District Court for the Southern District of New York upheld the insurer’s disclaimer, agreeing that the suit was not for covered “property damage.”  Although the apartment was damaged by the sprinkler failure, the court opined that Zale did not seek to hold the owners liable for that property damage.  Instead, Zale’s complaint sounded exclusively in unjust enrichment, alleging that the owners were liable for the cost of the additional labor and materials needed after the sprinkler failure.  The court also found that even if Zale did allege property damage, the exclusion for “property damage to property owned by any covered person” would apply to bar coverage. [Godfrey v. Exec. Risk Indem. Inc., 2022 U.S. Dist. LEXIS 118004 (S.D.N.Y. July 5, 2022).]

Second Department Holds That Limitation In Policy For Damage To Property Used For Business Purpose To Be Construed In Favor Of Insured

After personal property was stolen from the insured’s home, he submitted a claim for his loss to his homeowners insurer, Automobile Insurance Company of Hartford, Con-necticut.  The insurer limited the insured’s recovery for the loss to $12,500 based upon a limitation in the policy for property “used at any time or in any manner for any ‘business’ purpose.”  The insured filed a coverage action to recover his full loss, and the trial court granted summary judgment to the insured.  On appeal, the Supreme Court of New York, Appellate Division, Second Department, affirmed, reasoning that any ambiguity is to be construed in favor of the insured.  The court stated that the policy defined “business,” but it did not define the terms “use” or “business purpose,” and it “did not make clear whether the phrase ‘at any time’” means at any time during the policy period or, as the insurer suggested, broadly covers use at any time during the insured’s life, including the distant past.  The court concluded that the policy language is reasonably susceptible of an interpretation that would not apply the limitation to the property at issue, which was unique property created by the insured decades earlier and retained as part of a collection. [Birnkrant v. Automobile Ins. Co. of Hartford, Conn., 2022 N.Y. App. Div. LEXIS 4086 (2d Dep’t June 29, 2022).]

Second Department Dismisses Claim For Punitive Damages Based On Alleged Bad Faith

After being struck by a vehicle, the insured made a claim under the underinsured motorist provisions in her auto policy with New York Central Mutual Fire Insurance Company and then sued the insurer for punitive damages based on the insurer’s alleged bad faith in breaching the insurance contract.  The Supreme Court of New York, Appellate Division, Second Department, reversed the trial court’s denial of the insurer’s motion to dismiss the insured’s claim for punitive damages. The court reasoned that there is no separate tort for bad faith refusal to comply with an insurance contract under New York law; and the insured did not allege a claim for bad faith refusal to settle because there was no claim against the insured to be settled.  And even assuming the insured stated a cause of action for the independent tort of bad faith refusal to settle, the insured did not allege a cognizable claim for punitive damages, which requires conduct that is both (i) “morally reprehensible and of such wanton dishonesty as to imply a criminal indifference to civil obligations” and (ii) “part of a pattern directed at the public generally.” [Schlusselburg v. N.Y. Cent. Mut. Fire Ins. Co., 2022 N.Y. App. Div. LEXIS 3422 (2d Dep’t June 1, 2022).]

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