New York Insurance Coverage Law Update

May 23, 2024 | Alan C. Eagle | Insurance Coverage

Lost Business Income Not Covered Because Not Caused by Direct Physical Loss Or Damage, Third Department Finds

87 Uptown Road, LLC owned an apartment complex with 11 apartment buildings in Ithaca, New York, which were insured by Country Mutual Insurance Company. A fire destroyed one building (Building D), and the owner made a claim for coverage for loss of business income based on lost rents from the dispossessed tenants of Building D, and lost rents of tenants in other buildings that vacated because of inconveniences resulting from the fire and rebuilding of Building D. The insurer maintained that the policy did not provide coverage for the lost rents associated with the other buildings, and the Appellate Division, Third Department, agreed, finding that the policy unambiguously limited coverage to “lost business income which is caused by direct physical loss or damage to property at the described premises.” The court noted that the insurer met its burden of producing evidence that the buildings, other than Building D, were not “severely damaged, destroyed or rendered uninhabitable, and thus did not trigger [coverage] for loss of business income for these other buildings ….” The court concluded that loss of business income due to the inconvenience attendant to the fire “alone, absent direct damage,” is not enough. [87 Uptown Rd., LLC v. County Mut. Ins. Co., 225 A.D. 3d 1016 (3d Dep’t March 14, 2024).]

New York Supreme Upholds Insurer’s Disclaimer Based On Insured’s Failure To Sign And Return His EUO Transcript Even If Request For EUO Was Untimely

Simin Brown was injured in an auto accident and assigned his rights to no-fault benefits under his auto policy to his medical providers. State Farm denied coverage, filed a coverage action, and moved for summary judgment against the medical providers on the basis that Brown failed to sign and return the transcript of his examination under oath (EUO), which he attended at State Farm’s request.  State Farm relied upon the New York mandatory no-fault endorsement providing that “[n]o action shall lie against the [insurer] unless, as a condition precedent thereto, there shall have been full compliance with the terms” of the coverage, including that upon the insurer’s reasonable request, the injured person “submit” to an EUO and “subscribe the same.” The Supreme Court, New York County, held that Brown’s failure to execute and return his EUO transcript precluded coverage even if State Farm failed to timely ask Brown to appear for the EUO. The court reasoned that “having appeared …, [the injured person] must also take basic steps to enable the transcript of the testimony to be introduced at evidence” in a later judicial proceeding. [State Farm Fire & Cas. Co. v. Atlantic Diagnostics, LLC., 2024 N.Y. Misc. LEXIS 1792 (N.Y. Sup. Ct., N.Y. Cnty. April 4, 2024).]

Bronx Supreme Denies Default Judgment To Insurer Who Did Not Submit Proof Of Meritorious Claim

Utica First Insurance Company insured a restaurant and filed a declaratory judgment action against its insured and its insured’s landlord, seeking a declaration that it need not cover the restaurant, landlord or any other party in an underlying personal injury action. Utica First asserted that the landlord was not covered as an additional insured and that an exclusion for injuries to an insured’s employee precluded coverage. Utica First named the injured claimant as a nominal defendant in the declaratory judgment action. The restaurant failed to appear, so Utica First filed a motion seeking a default judgment against the restaurant. Utica First provided proof that the restaurant was in default, but admittedly neglected to provide any proof of a meritorious claim. In opposition, the owner and claimant submitted deposition transcripts from the underlying personal injury action reflecting that the claimant was not an employee of the insured. The court denied Utica First’s motion, rejecting its argument that a limited default judgment may be issued finding that the restaurant had not appeared in the action. The court reasoned that default judgments are not “rubber stamped” and, instead, require some showing as to a viable or meritorious claim. [Utica First Ins. Co. v. Montespino Rest. Corp., 2024 NYLJ LEXIS 1088 (Sup. Ct., Bronx Cnty. April 9, 2024).]

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