New York Insurance Coverage Law Update

August 1, 2012 | Insurance Coverage

Appellate Court Reinstates Claims Against Homeowner’s Insurer

A homeowner sued his insurer for damage from a burst water pipe. The appellate court affirmed the trial court’s decision to dismiss the homeowner’s claims for intentional and negligent infliction of emotional distress, finding that the insurer’s alleged conduct “did not so transcend the bounds of decency as to be regarded as atrocious and intolerable in a civilized society.” The appellate court, however, ruled that the trial court should not have dismissed the homeowner’s claim under General Business Law § 349 for unfair practices including what the homeowner alleged was a general practice of inordinately delaying settlement of claims by similarly situated policyholders. The appellate court reasoned that the complaint, as amplified by the affidavit and submitted documentation, stated a cognizable cause of action. The appellate court also ruled that the trial court should have compelled the insurer to provide a privilege log with respect to documents contained in the homeowner’s claim file for an in camera review of allegedly privileged documents. [Ural v. Encompass Ins. Co. of Am., 2012 N.Y. Slip Op. 05407 (2d Dep’t July 5, 2012).]

Court Rejects GBL §349 Claim Against Insurer In Construction Case

After a subcontractor’s employee who allegedly was injured in the course of his employment sued the general contractor, the general contractor sued the subcontractor. The subcontractor’s insurer disclaimed coverage, citing the exclusion for bodily injury to an employee of an insured, and the subcontractor sued the insurer for violating General Business Law § 349. The trial court dismissed the complaint and the appellate court affirmed, finding that the case at most involved a private contract dispute over policy coverage and the processing of the subcontractor’s claim, and not conduct affecting the consuming public at large. [Vescon Constr., Inc. v. Gerelli Ins. Agency, Inc., 2012 N.Y. Slip Op. 05511 (2d Dep’t July 11, 2012).]

Exception to Water Loss Exclusion Is Ambiguous, Court Finds

An abutting water main ruptured and flooded the insureds’ home. The insureds contended that an exception to the water loss exclusion applied because their claimed loss was caused by an “explosion” of the water main. Their insurer argued that the exception applied to a secondary loss following an “explosion … resulting from” an initial loss to the insureds’ property. The court found that both interpretations were reasonable under the circumstances. Therefore, it concluded, the exception was ambiguous and should be construed in favor of the insureds. [Platek v. Town of Hamburg, 2012 N.Y. Slip Op. 05459 (4th Dep’t July 6, 2012).]

Court Rejects Challenge To Supplemental Spousal Coverage Law

After the insured’s spouse was injured in the insured’s car and threatened to sue the insured, the insured’s insurer disclaimed coverage because he had not purchased the supplemental spousal coverage required under New York Insurance Law §3420 to cover alleged negligence to a spouse. The insured contended that the law was an unconstitutional “bill of attainder” that punished married people. The court rejected that argument, finding that the law was enacted to protect insurance carriers against lawsuits through collusive actions between married people and was not intended as “punishment.” [Osuna v. Government Employees Ins. Co., No 11-CV-3631 (E.D.N.Y. July 16, 2012).]

Title Insurance Encompassed UCC-1 Fixture Filing

A title insurer argued that a home heating oil company’s UCC-1 fixture filing against a home’s prior owner was not covered by the new owner’s policy because fixtures were personal property. The court ruled against the insurer, concluding that fixtures are a part of real property and that a fixture lien constituted a lien or encumbrance on a real property’s title. [Saul v. Fidelity Natl. Tit. Ins. Co., 2012 N.Y. Slip Op. 51376(U) (N.Y.Civ. Ct. July 18, 2012).]

Punitive Damages Portion of Jury Verdict Not Covered By Professional Indemnity Policies

A Florida jury ordered an accounting firm to pay compensatory damages and $55 million in punitive damages. A New York court found that applicable New York law precluded insurance indemnification for punitive damages, whether based on intentional actions or actions that amounted to gross negligence, recklessness, or wantonness, and that the New York rule applied even where the punitive damages were awarded in another state. [Certain Underwriters at Lloyd’s v. BDO Seidman LLP, 2012 N.Y. Slip Op. 51425(U) (Sup. Ct. N.Y. Cty. July 27, 2012).]

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