New York Insurance Coverage Law Update

May 30, 2023 | Alan C. Eagle | Insurance Coverage

Fourth Department Holds That Ensuing Loss Exception To Faulty Workmanship Exclusion Applies To Restore Coverage For Water Loss

The insureds owned a house covered by an all-risk homeowner’s insurance policy issued by Erie Insurance Company of New York that provided coverage for damage to the house unless specifically excluded.  The policy contained an exclusion for loss caused or contributed to by faulty workmanship with an exception restoring coverage where “as a result of an excluded peril, a covered peril arises and causes damage.”  The insureds hired contractors to install a shower, and the shower leaked because of faulty workmanship resulting in extensive water damage throughout the house.  Erie disclaimed coverage based on the faulty workmanship exclusion, and the insured sued.  The trial court granted summary judgment to Erie, but the Appellate Division, Fourth Department, reversed, reasoning that “the ensuing loss exception provides coverage here because, as a result of an excluded peril (faulty workmanship), a covered peril arose (water discharge from a plumbing system) and caused other harm (water damage) to separate property (areas throughout the house).  The court rejected Erie’s argument that the insureds were attempting to resurrect coverage for an excluded peril and distinguished cases where insureds sought coverage under an ensuing loss exception for the cost of correcting the faulty or defective workmanship.  [Ewald v. Erie Ins. Co. of N.Y., 2023 N.Y. App. Div. LEXIS 1441 (4th Dep’t March 17, 2023).]

Southern District Finds Accident Took Place Before Loading Of Truck And Therefore GL Carrier’s Policy Applies

The insured had a business through which customers bought and sold furniture. The insured sent employees with a truck to pick up a couch from a customer’s sixth-floor condominium in Manhattan.  As the employees began to descend the sixth-floor staircase, the couch struck an exposed sprinkler head allegedly causing millions of dollars in water damage to the building’s occupants and resulted in claims against the insured.  The insured’s GL insurer (Travelers) disclaimed coverage because its auto exclusion precluded coverage for property damage arising out of the loading of an auto, which included the handling of property “[a]fter it is moved from the place where it is accepted for movement into or onto an … auto”.   And the insured’s auto insurer (State Farm) disclaimed coverage on the basis that its policy did not cover accidents before loading.   The United States District Court for the Southern District of New York held that the GL carrier was obligated to defend and to indemnify the insured, finding that the accident in the stairwell occurred before the “loading.”  The court opined that the auto exclusion’s reference to “the place” is ambiguous as to whether it means the customer’s apartment or building, and that the sixth-floor stairwell was “too remote” from the insured’s truck waiting on the street, or from any use of it, to constitute “loading” under New York caselaw.  [Furnishare, Inc. v. Travelers Prop. Cas. Co. of Am., 2023 U.S. Dist. LEXIS 73983 (S.D.N.Y. April 28, 2023).]

Court Holds That Insurer’s Disclaimer to Additional Insured’s Insurer Did Not Comply With New York Insurance Law Section 3420(d)

The owner of a building in Queens was sued for a construction accident, and the owner’s insurer sought additional insured coverage on the owner’s behalf from the contractor’s insurer, Rockingham Insurance Company.  Rockingham sent a disclaimer to the owner’s insurer based on an exclusion for bodily injury to an employee or contractor.  Rockingham did not send the disclaimer to the owner.  The Supreme Court, New York County, held that Rockingham had a duty to defend the owner as an additional insured because its disclaimer did not comply with New York Insurance Law § 3420(d).  The court acknowledged that the demand for additional insured coverage came from the owner’s insurer, but stressed that the Court of Appeals has held that notice of disclaimer “provided by an insurance company to another carrier instead of to the additional insureds did not constitute proper notice under the Insurance Law”, citing Sierra v. 4401 Sunset Park, LLC, 24 N.Y.3d 514 (2014). [83rd St. Tenants, Inc. v. Rockingham Ins. Co., 2023 N.Y. Misc. LEXIS 1874 (Sup. Ct., N.Y. Cnty April 10, 2023).]

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